CA FOUNDATION: ACCOUNTING · FINAL ACCOUNTS OF SOLE PROPRIETORS

Profit and loss account: net profit with adjustments

NP = Gross profit + Other incomes − Indirect expenses. Add outstanding expenses; deduct prepaid expenses from the amount paid.

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Worked examples

Example 1 · level 1

Verma Hardware: Gross profit ₹4,41,000; Commission received ₹5,500; Salaries paid ₹36,000; Rent paid ₹32,000; Carriage outwards ₹3,000. Find the net profit.

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Incomes: GP ₹4,41,000 + commission ₹5,500 = ₹4,46,500.
Total indirect expenses = ₹71,000.
NP = ₹4,46,500 − ₹71,000 = ₹3,75,500.

Answer: ₹3,75,500

Example 2 · level 2

Nair Spices: Gross profit ₹3,16,000; Commission received ₹1,500; Salaries paid ₹57,000; Rent paid ₹34,000; Carriage outwards ₹5,500; Depreciation ₹20,000; Bad debts ₹3,000. Find the net profit.

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Incomes: GP ₹3,16,000 + commission ₹1,500 = ₹3,17,500.
Total indirect expenses = ₹1,19,500.
NP = ₹3,17,500 − ₹1,19,500 = ₹1,98,000.

Answer: ₹1,98,000

Example 3 · level 3

Kapoor Electronics: Gross profit ₹1,84,000; Commission received ₹1,500; Salaries paid ₹73,000; Rent paid ₹38,000; Carriage outwards ₹5,500; Depreciation ₹27,000; Bad debts ₹1,500. Adjustments: salaries outstanding ₹8,000; rent prepaid ₹1,000. Find the net profit.

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Salaries = ₹73,000 + ₹8,000 = ₹81,000; Rent = ₹38,000 − ₹1,000 = ₹37,000.
Total indirect expenses = ₹1,52,000.
NP = ₹1,85,500 − ₹1,52,000 = ₹33,500.

Answer: ₹33,500